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Health care: Going from broken to broke

By Shawn Tully, senior editor at large, March 12, 2010: 1:37 PM ET

NEW YORK (Fortune) -- A few nights ago in the historic Renaissance Grand Hotel in St. Louis, Mo., President Obama reassured a crowd of Senator Claire McCaskill supporters that health-care reform wouldn't just be good for their health, it would be good for the health of the country: "I said at the beginning of this thing we would not do anything that adds to our deficit," he said to the clapping audience. "This plan does not do anything to add to this deficit. And that's how we should be operating."

What he didn't discuss was what kind of accounting he was using to generate such applause lines. And the answer to that sheds new light on whether the nearly $900 billion measure really delivers the savings -- or, as many fear, does exactly the opposite.

The issue is critical, because America is hurtling towards a debt crisis. On March 5th, the Congressional Budget Office released a report stating that the federal debt will grow far faster than the president is predicting, reaching a staggering 90% of GDP by 2020. That's comparable to the load now crippling Greece. In a decade, says the CBO, one dollar in six of federal spending would go towards paying interest almost equaling expenditures on Medicare. (Emphasis added)

President Obama is claiming that his health-care plan will substantially lower future deficits. Naturally, it's the huge budget shortfalls that cause the debt problem by forcing the U.S. to borrow more and more money to bridge the gap between spending and revenues. For proof, he cites the CBO report from March 11 forecasting that the Senate bill -- the basis of the president's proposal -- will pare the deficit by $118 billion over the next decade.

That forecast, however, doesn't mean that what the CBO counts as lower deficits will lead to less debt, as taxpayers might expect. In fact, it appears that it would require the Treasury to borrow almost 40 cents of every dollar in new spending the bill requires.

How to lower a deficit and raise a debt

It's not an easy trick to reduce deficits and yet borrow more money. CBO does it because it has to. By law, the CBO is required to use "cash" or "unified budget" accounting. Under that system, the CBO projects all the new revenues and new expenses from the legislation it's requested to "score." If the extra revenues exceed the additional outlays, the bill is deemed to reduce deficits. That's the case with the health-care bill. The rub is that the measure gets a large portion of its revenues from new Social Security and Medicare taxes -- plus levies it collects upfront to pay for a long-term care entitlement program.

Continues @ CNN Money

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-- Edited by Sanders on Saturday 13th of March 2010 04:09:39 PM